2014-0553481I7 TAXABLE BENEFIT – CELL PHONES

Principal Issues: Where an employer pays part of the cost of an employee’s cell phone voice and data plan, whether the reimbursement is considered a taxable benefit for the employee under paragraph 6(1)(a).

Position: It is a question of fact.

Reasons: See response.

Author: See response.
Section: 6(1)(a); 6(1)(b).

XXXXXXXXXX

2014-055348

March 6, 2015

Dear XXXXXXXXXX:

Re: Taxable benefit – cell phones

We are writing in response to your e-mail of October 21, 2014, and our conversations of January 6 (McCarthy/XXXXXXXXXX), and February 26, 2015 (McCarthy/XXXXXXXXXX), concerning the tax implications under the Income Tax Act (“Act”) for certain employees of the XXXXXXXXXX (“Employer”), who use their personal cell phones to perform their employment duties. More specifically, you enquired whether the Employer’s payment of part of the cost of the employee’s personal cell phone voice and data plan (“Plan”) is subject to income tax under the Act.

You described how the Employer will require certain employees to use their personal cell phones for employment purposes (“Qualifying Employees”). The Employer will offer each Qualifying Employee a partial reimbursement for his or her Plan.

Each Qualifying Employee will be reimbursed for XXXXXXXXXX% of his or her actual basic monthly Plan cost incurred, to a maximum of $XXXXXXXXXX per month. The Qualifying Employees will be required to provide proof of Plan payment on a monthly basis (i.e., copies of monthly Plan bills and proof of payment), in order to receive the reimbursement. The $XXXXXXXXXX maximum was determined based on publicly available, average basic monthly Plan costs in the province or territory. The average monthly cost is a fixed amount that provides for unlimited calling anywhere in Canada and a data component. A higher rate may be reimbursed for enhanced Plans, if it is required for the Qualifying Employee’s employment duties. Unless there is a business need, roaming charges and over use charges will not be reimbursed by the Employer.

The Employer will not purchase or reimburse the cost of employees’ cell phones. Further, the Employer will not replace any employee’s cell phone that is lost or damaged.

All legislative references are to provisions of the Income Tax Act.

Our comments

Reimbursements

Generally, the amount of any reimbursement received by an employee by virtue of employment is included in employment income under paragraph 6(1)(a). For the purposes of paragraph 6(1)(a), the Canada Revenue Agency (“CRA”) considers a reimbursement to be a payment made to repay an amount spent on a specific expense. In order to be considered a reimbursement, the employee should present detailed receipts to the employer.

However, where an employer reimburses an employee for a specific expense incurred in the performance of his or her employment duties, the reimbursement will generally not be considered a taxable benefit under paragraph 6(1)(a). It is a question of fact whether a particular employee has received a taxable benefit under paragraph 6(1)(a) from the Employer’s payment of part of the cost of his or her Plan.

Since the payment would be for a reasonable basic Plan required for employment purposes and the Qualifying Employee is required to provide detailed receipts (i.e., copies of monthly Plan bills and proof of payment) to the Employer, the payment would likely be considered a reimbursement of an employment-related expense and would not be taxable under paragraph 6(1)(a).

Allowances

Paragraph 6(1)(b) includes in income from employment all amounts received in the year as an allowance for personal or living expenses, or as an allowance for any other purpose, unless it falls under the exceptions in subparagraphs 6(1)(b)(i) to (ix). For the purposes of paragraph 6(1)(b), the CRA considers an allowance to be any periodic or other payment that an employee receives without having to account for its use (i.e., no detailed receipts are provided to the employer). This would be the case where the payment is based on an estimate of the Plan cost and is made without regard to the actual Plan expense paid by the Qualifying Employee.

In our view, none of the exceptions in subparagraphs 6(1)(b)(i) to (ix) apply to a Plan. Consequently, where an allowance is provided to an employee for a Plan, it is included in his or her income under paragraph 6(1)(b) even though the employee may be required to use the Plan in the course of carrying out his or her duties of employment. Based on the information provided and as noted above, it appears that the Employer’s payment is a reimbursement and not an allowance.

Cell phone

Generally, where the cost of an employee’s asset is paid for by an employer, the fair market value of the asset is considered a taxable benefit for the employee under paragraph 6(1)(a). Therefore, if an employee’s cell phone is paid for or replaced by the Employer, the fair market value of the phone is considered a taxable benefit for the employee. This is so even if the employee used, lost, or damaged the phone in the course of carrying out his or her employment duties.

For more information on providing employees with a cell phone, go to www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/prvdd/cll-eng.html.

We trust our comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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